Money as Debt?

The mini-movie, Money as Debt by Paul Grignon is a breakdown of the way banks originated and how they function today. The movie was eye-opening for me because I had never really taken the time to understand just how banks work. During this time of economic crisis, it is extremely important to have a grasp on what's going on. Grignon explains that banks use debt to create loans. What this means is that a bank can essentially give out as many loans as it wants, even if it doesn't have the actual paper money to back it up. This creates money out of thin air. This means the people who take out loans are indebted to the bank, and as long as they pay it back, it makes no difference to either party. The person who took out the loan is none the wiser, and since they pay interest, the bank makes a profit. Basically, a bank is creating money out of nothing, which Grignon calls a "magic trick". The movie gives the example of the earliest banker, who started out with a vault to hold his gold coins. Eventually, his fellow townspeople began asking if they could also save their money there. After charging small percentages for the service, he began thinking of new ways to make even more money. He started giving out loans and charging interest. He eventually realized that he could give out more money than he could back up with the vault, knowing clients never came all at once. This allowed him to make a great profit. This is basically how our banks work today. It sounds kind of crazy, but it's actually very simple.

What Grignon suggests is to create a self-perpetuating system of control. He wants to end the cycle of debt that seems so inescapable. By making money out of debt, it creates a system where people are always paying more and more to pay off the debt. This creates an economy that can't support itself, and instead, everyday citizens are in a never-ending game of catch-up. Grignon has an idea to create money out of value, instead of debt. For example, the government should put money into the economy by putting it into things of value, like bridges, roads, and transportation. This ways the funds would trickle down the economy and it can be recycled.


2. Why create money as debt? Why not create money that circulates permanently and does not have to be perpetually re-borrowed in interest in order to exist?

Creating money out of debt allows banks to make a profit with out having to use any of their own money. It seems this way, banks can make an almost infinite profit as long as not everyone w ithdraws their money at once. This is a system that favors big banks and coorporations over the everyday working person.